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Fair
Lending Among Regualtors' top Concerns
One
of the items high on the list of examiner concerns is fair lending.
A few years ago, this statement would not have surprised us. Then,
we had a break from so much publicity about it due to other
priorities. However, as we all know, the concern never really went
away. Now, the regulators are planning to turn the focus back on
redlining, reverse redlining and loan-denial rate disparities as
they conduct fair lending reviews. Nonmortgage products, such as
auto loans and credit cards, are also expected to receive close
attention for signs of fair lending abuses.
It
is important to keep in mind that fair lending concerns extend to
all phases of the lending process. According to the January 2010
issue of ComplianceAction,
“When fair lending is the topic, we tend to think in terms
of taking applications, underwriting, and making loans. We don’t
tend to think about fair lending in the context of keeping loans on
the books, helping borrowers stay current, or giving fair treatment
to borrowers in collections. However, both the Equal
Credit Opportunity Act (ECOA) and the Fair
Housing Act (FHA) reach
all aspects of a credit transaction from marketing and application
to payoff, collection or foreclosure…….. Violations of fair
lending laws can occur at the point of payoff or collections. But
the point where problems occur is what tends to bring the
consumer’s affirmative defenses to the fore. Before initiating
collection actions of any kind, a prudent lender should review the
loans for compliance, particularly for fair lending. After all, most
of the signature discrimination cases were brought in bankruptcy
court.”
Influencing
Factors
Several events have signaled the increased interest in lending and
the concern that unfair practices are resurging. In August 2009, the
Federal Financial Institutions Examination Council (FFIEC) issued
revised Interagency Fair Lending Examination Procedures. Specific
changes were made for setting the examination scope, the procedures
for assessing fair lending performance, and relevant appendices to
update certain sections and clarify others. Some of the other
changes included technical guidance to Regulation B, the
implementing regulation for ECOA, related to electronically accessed
application forms and disclosures added to the Technical Compliance
Checklist, Appendix L. The Underwriter Interview Guide, Appendix J,
was also expanded.
In
March 2009, US Attorney General Eric Holder said “If you
discriminate against borrowers or prey on vulnerable homeowners with
fraudulent mortgage schemes, we will find you, and we will punish
you.” That left little room for doubt as to the intent of the Department
of Justice (DOJ). In January 2010, The DOJ’s Assistant
Attorney General for the Civil Rights Division, Thomas E. Perez,
announced the creation of a new Fair Lending Unit within the Civil
Rights Division’s Housing Section to address discriminatory
lending practices.
In
discussing the new Fair Lending Unit, Assistant Attorney General
Perez said the department’s initiative is multi-faceted. Mr.
Perez’ announcement reaffirmed the Department’s commitment to
investigate traditional cases of lending discrimination, such as
denials or differing terms of credit because of race or national
origin. He also they would continue the focus on lenders that
“redline” minority communities as off-limits for loan products.
He also promised a new focus on “reverse redlining” in which
lenders are accused of targeting minority borrowers or communities
for inferior loan products such as subprime or “predatory”
products.
DOJ
is not limited to the specifics of referrals in the pipeline. In a
recent case against First United Security Bank, the FDIC cited only
pricing discrimination. The DOJ’s investigation added redlining
charges. DOJ will be looking at its own data and no longer has to
wait for referrals from the regulators.
ComplianceAction
is published 16 times a year. It can be ordered at
800-660-0080.
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